22 March 2016

Debate: Is capitalism working?

By Zac Tate and Patrick Ireland

Tomorrow, in light of the storm which has been engulfing politics across the world, Shout Out UK are teaming up with CapX to host the event The Case for Capitalism: Is Capitalism Working? Join us for an evening of heated debate as modern capitalism is placed under the microscope and scrutinised – encompassing speakers on both the Left & Right. For more information, please click here. Below we feature arguments on both sides of the debate ahead of the event.

YES – Zac Tate, CapX

Capitalism is not perfect – but history tells us that it works

When thinking about state of the world, 2015 was a year that many people would like to forget. After the protracted and wearying drama involving Greece’s future place in the euro area, scenes of civil war, embattled refugees and terrorist outrages were the focus of the global news agenda.

But working beneath the day-to-day strife has been a wonderful transformation which has been in train for decades.  In October last year, the World Bank declared that global poverty had fallen below 10% for the first time in human history. Over 200 million people have been lifted out of poverty since 2012, despite rapid increases in the global population.

That figure is of course 10% too many, but it is important to place this figure into an historical perspective. In 1820, at a time when most of the world was untouched by the forces of commerce unleashed by the Industrial Revolution, 84% of the world’s population lived in absolute poverty. Breakthrough innovations in agricultural technologies – Pasteurisation (1863), refrigeration (1850s), nitrogen fixation (1918), scientific plant breeding (1920s), combine harvesters (1930), and GM crops (1980s) – have saved, and continue to save, billions from starvation. By keeping yields high and food prices low, innovation has greatly enhanced human potential.

It was a nascent enterprising spirit in Britain which encouraged James Watt to produce the world’s first steam engine, and which then spurred on Richard Arkwright’s Water Frame (1769), Samuel Crompton’s Mule (1779), and Edmund Cartwright’s Power Loom (1785). A cottage industry in cotton soon became a global empire and Britain became the world’s first developed country.

For all the faults of the market, it has been a wonderful engine of material progress – not just the gaudy ostentation– but important things such as vaccinations, bountiful harvests, secure homes furnished with all the life enhancing benefits of three industrial revolutions. Air travel, household appliances, mobile internet, and the sharing economy. John Maynard Keynes knew this very well when he corrected predicted that living standards would be over four times higher in 2030 than when he wrote his paper on the Economics Possibilities for Our Grandchildren in 1930.

While it would be wrong to suggest that all of these benefits are the sole consequence of “the market,” it is a market system which permits capital to accumulate and allows governments to provide infrastructure and public services that has underpinned the developments of the last two centuries. The institutions of capitalism – rule of law, private property and decentralisation – have coincided with the decline of totalitarian regimes around the world.

It’s important to place capitalism into an historical perspective for two reasons. Firstly, because most people believe global poverty is rising. In one of a series of questions for a recent TED talk, statistician Hans Rosling asked his audience about the development of extreme poverty in the last 20 years. Two-thirds of US adults thought poverty had doubled, 29% believed it had remained the same, while just 5% knew better.

Secondly, because those who disagree with the system of capitalism invoke Marxist critiques which were much more relevant to the 19th century than they are today. That is not to say Karl Marx is wholly irrelevant. In the third volume of his magnum opus on Capital, he wrote the following which will resonate with many observers today:

“On the basis of capitalist production a new swindle develops in stock enterprises with respect to wages of management, in that boards of numerous managers or directors are placed above the actual director, for whom supervision and management serve only as a pretext to plunder the stockholders and amass wealth.”

While today there is far more social mobility in advanced economies and ownership of productive assets is more broadly dispersed, support for markets is being undermined by a systematic failure to deal with some of its worst features. The price of freedom is eternal vigilance, and those who support the free enterprise system cannot afford to be complacent.

Seven years after the financial crisis, corporate wrongdoings – from bank fraud to emissions-rigging – remain in the spotlight, and large groups are losing out. Meanwhile, electorates in some countries – particularly the United States – are worried about rising inequality, stagnating incomes, the growth of unaccountable mega corporations, and the disruption caused by a new wave of automation.

But while these issues are important, they are issues of political economy rather than to do with inherent failures in the capitalist system. Corporate governance reforms can give more control to shareholders over business decisions, tax system can be changed, and good regulations can discourage bad behaviour and promote competition. In all of these problems, we are dealing with issues of social contract and how a democratic capitalism should best work while protecting individual freedom.

Karl Marx understood the nature of capitalism deeply. He saw the joint-stock company, which underpins the market system, as “capitalist production in its highest development,” and he supported it because by separating ownership from management, capitalism – he believed – was in the late stages of its dialectical transition to communism. Private companies would pool capital but screw up so badly that they’d have to be taken over by the state.

The 20th century proved him wrong on that point. And in the 21st century, we have come to accept that capitalism is not about the boss class versus the peasants any more. It’s about choice, freedom within the rule of law, and personal responsibility. It remains an essential feature of a successful modern state.

We should tackle the issues that capitalism has thrown up, but not lose sight of the fact that by improving the material standard, markets and capitalism have raised the dignity of man. It was capitalism which broke down the feudal arrangements that kept the great majority of people ignorant and servile, and that made life in the 17th century eyes of Thomas Hobbes nasty, poor, brutish and short for almost the entire length of human history.


NO – Patrick Ireland, ShoutOutUK

Time to change capitalism

Kenya, 2012. It’s my birthday and I have managed to get my hands on a pirated copy of The Dark Knight Rises. I’m sat in a rundown internet café, heavily sunburnt and slowly being eaten alive by mosquitos.

About 30-minutes into the movie, Selina Kyle (played sportingly by Anne Hathaway) is talking politics with the Dark Knight himself, Christian Bale. She says this, something that has resonated with me ever since: “There’s a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you’re all gonna wonder how you ever thought you could live so large and leave so little for the rest of us”.

Let’s flash-forward to 2016. Oxfam have recently released a study which suggests that 62 people now have as much financial wealth as half of the global population (roughly 3.5 billion). Moreover, as austerity measures rip apart public services in this country – services which our grandparents built together after the Second World War – the majority of us, particularly young people, are now living in huge debt with little to no money or prospects.

Now, I was born in 1990 – the year Margaret Thatcher was ousted as Leader of the Conservative Party by John Major. I cannot pretend that I grew up under the allegedly ‘harsh’ and ‘cold’ years of Thatcher (as my parents often describe it). However, that said, Thatcher’s legacy has continued to influence British politics – and thus my own life over the past twenty-five years as a result. Tony Blair’s New Labour project for instance was essentially Thatcherite in nature with a complete and utter dedication to free markets and privatisation (or ‘public-private partnerships’ as Blair called them). This current Conservative government are no different, if not more potent.

What Thatcher did – and I am sure that both the Left and Right can agree on this – was fundamentally transform British politics. Thatcher, accompanied by Ronald Regan in the United States, introduced the world to ‘neoliberalism’. What’s that?

Well, neoliberalism is a slippery term that can be, and is used, to denote all kinds of different things. For me however, the academic David Harvey captures its key elements. Neoliberalism, as Harvey writes, is “in the first instance a theory of political-economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterised by strong private property rights, free markets and free trade”. In short, neoliberalism champions the logic of capitalism and ‘the market’, and seeks to minimise ‘political’ (social democratic) interventions in markets and economic affairs on the grounds that they inhibit the alleged benefits to be gained from free market mechanisms. It’s almost inherently suspicious of democracy as this potentially risks interference with, or contamination of, ‘the market’.

Alright, so what’s it done? Well, ultimately, the result of neoliberalism over the past four decades is this. The modern world. Massive income inequality on a scale that we haven’t witnessed for over 100 years. The breakdown of community and collective values, replaced instead by rugged individualism. A serious loss of autonomy among nation states as they desperately fight to retain capital – and to avoid capital flight – by satisfying the demands of corporate power. The slow ‘hollowing out’ of democracy – and thus the cynicism which is often associated with contemporary politics – as the financial interests of a few regularly trump the needs and desires of the rest of us. Indeed, one could even argue that the rise of Donald Trump and his apparent ‘anti-establishment’ rhetoric, which is virtually sending the Republican Party into cardiac arrest across the Pond, is indirectly a result of the failed neoliberal experiment.

In short, people are not happy with politics and the way things are being run. Looking at the modern world today, you don’t have to be a drooling-at-the-mouth-Marxist to reach the conclusion that something is seriously wrong. The financial crisis in 2008, and the economic instability that has followed as a result, indicates – at the very least – that capitalism (or ‘neoliberal capitalism’ if you will) is very ill. 2008 came about because capitalism had outgrown what little restraints it had left and become too powerful, over-bearing and all-encompassing.

Bleak, right? Sorry. So what’s my message – shall we overthrow capitalism and replace it with some kind of utopian, anarchist-socialist society dreamed up in a haze of weed at some Anonymous protest? Maybe, I’m not too sure. It’s hard to know what the future holds and I don’t want to try and predict it. Neoliberals like Francis Fukuyama have already tried that – claiming during the 1990s that humankind had reached the ‘end of history’ as Western capitalism triumphed over Soviet communism like the Power Rangers vanquishing the evil Lord Z and his minions. The end of history is certainly interesting.

No, my message is actually for those on the Right – and I assume the majority of CapX’s readers. Listen to what Selina Kyle told Bruce Wayne in The Dark Knight Rises: “There’s a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you’re all gonna wonder how you ever thought you could live so large and leave so little for the rest of us”.

I suspect that proverbial storm is about to hit all of us.


This article does not necessarily represent the views and opinions of Shout Out UK who remain firmly committed to political neutrality.

Zac Tate is Deputy Editor of CapX and Patrick Ireland is Creative Director at Shout Out UK.